Companies
Ola Electric’s IPO: charging ahead or running on empty?
Summary
The electric vehicle giant is set to test investor appetite with its IPO. But despite leading the EV charge, it faces some hiccups in its journey.Ola Electric Mobility is expected to electrify the stock market with its highly anticipated initial public offering of shares set to kick off on Friday. But as investors buckle up for what could potentially be this year’s biggest IPO ride, the critical question is if Ola Electric will make for a fully charged investment or run into a speed bump.
Let's plug in and analyse. Ola Electric is looking to raise ₹6,146 crore at the upper end of its ₹72-76 price band. That would take its valuation to about ₹33,522 crore, or about $4 billion.
Ola Electric, India’s largest maker of electric scooters, has demonstrated impressive growth in recent years. As per its IPO documents, its scooter sales volumes jumped 2.1 times to reach 330,000 units in the financial year 2023-24, building on the previous year’s jump of nearly eight times.
This rapid expansion was reflected in the company’s revenue, which almost doubled to ₹5,009.8 crore in 2023-24, following up on a 605% growth in the preceding year.
While Ola Electric is yet to become profitable, it managed to narrow its operating loss to ₹1,040.2 crore in 2023-24 from ₹1,197.1 crore in the year before.
“Ola Electric’s vertically integrated business model is strategically designed to optimise cost structure and supply chain efficiency," said Sonam Srivastava, founder and fund manager at Wright Research.
Moreover, the company has been a significant beneficiary of the government’s production-linked incentive schemes for automobiles and cell manufacturing.
But Ola Electric’s revenue engine in 2023-24 was remarkably concentrated, with just two e-scooters—the Ola S1 Pro Gen 1 and Gen 2—contributing 59.7% to overall operational revenue, signalling a potential vulnerability.
Also read | IPO-bound Ola Electric slashes valuation to $4 billion
Additionally, the company’s estimated market cap-to-revenue ratio of 6.7 times is significantly higher than that of established players—for TVS Motor Ltd, it’s 3 times, and for Hero MotoCorp Ltd, 2.9 times. This raises concerns about Ola Electric’s valuation.
Another critical hurdle for Ola Electric is the dual challenge of employee retention and increasing order cancellations.
The company’s employee attrition rate was notably high at 44.25% in 2023-24, following a 47.48% rate in the previous fiscal year.
Also read | Ola Electric holds a battery secret on road to IPO
Order cancellations as a percentage of fully paid and confirmed orders were 9.14% in 2023-24, compared with 7.69% and 9.41% in the previous two fiscal years, suggesting a potential underlying issue with customer satisfaction.
“Ola Electric’s high labour attrition rate poses significant challenges to its operations and growth. A high turnover rate can disrupt production processes, hinder knowledge transfer, and negatively impact employee morale," said Srivastava.
Even so, opportunities abound as Ola Electric appears to be aggressively pursuing growth opportunities. The company’s capital expenditure surged from ₹887.3 crore in 2021-22 to ₹1,213.9 crore in 2023-24.
Further, Ola Electric’s commanding market position positions it for sustained growth and industry dominance. The company boasted a 35% share of India’s electric-two wheeler segment in 2023-24, higher than TVS Motor’s 19.3%, Bajaj Auto Ltd’s 11.3%, and Hero MotoCorp’s 1.9%.
“Ola Electric’s growth and market leadership are notable also as (electric-two wheeler) is projected at ~41-56% of domestic two-wheeler sales by FY28, indicating growth as Ola has ~35% market share and high-volume sales," said Atul Parakh, CEO of online investment and trading firm Bigul.
